Liquidia Corporation (LQDA) Q3 2018 Earnings Report, Transcript and Summary

Good morning, ladies and gentlemen. My name is Charnel, and I will be your conference operator today. I would like to welcome everyone to the Liquidia Technologies Third Quarter 2018 Financial Results and Corporate Update Conference Call. At this time all participants are in a listen-only mode. [Operator Instructions] I would like to remind everyone that this conference call is being recorded. I would like to hand the call over to Jennifer Almond, Liquidia's Director of Investor of Relations and Corporate Communications, to begin.

Thank you, Chaneal. Good morning, and welcome to Liquidia Technologies Third Quarter 2018 Financial Results and Corporate Update Conference Call. Joining me today are Neal Fowler, Chief Executive Officer; Kevin Gordon, President and Chief Financial Officer; and Dr. Robert Roscigno, Senior Vice President of Product Development and Program Lead for LIQ861. Before I turn the call over to Neal, I would like to remind you that today's call will include forward-looking statements pursuant to the Private Securities Litigation Reform Act of 1995 based on current expectations. Such statements represent management's judgment as of today and may involve significant risks and uncertainties that could cause actual results to differ materially from expected results. Please refer to our filings with the SEC, which are available from the SEC or on our corporate website at www.liquidia.com, for information concerning risk factors that could cause such differences and otherwise affects the Company. I will now turn the call over to Neal Fowler, our CEO.

Thank you, Jennifer, and good morning, everyone. I'm honored to be here today as this represents Liquidia's first of what we expect will be many quarterly update calls after completing our initial public offering in July of this year and being listed on in the NASDAQ exchange. Thank you, everyone, for taking time this morning to join us. We're excited to update you on our pipeline progress, in particular around our lead product candidate LIQ861 for pulmonary arterial hypertension or PAH. We will also provide highlights during today's call of our financial results for the third quarter of 2018, and describe certain anticipated milestones for the remainder of 2018 and 2019. After our prepared remarks, we will be available to take your questions. With that, I will dive into our lead program, LIQ861, for which you may have seen in this morning's press lease that we had completed enrollment of the safety portion of our pivotal, open-label Phase III clinical trial, known as INSPIRE, or the investigation of safety and pharmacology of dry powder inhalation of treprostinil. As of October 24, we have enrolled 109 patients at our INSPIRE trial, completing the safety portion of the trial. Based on feedback from FDA, we believe that this trial will support the NDA filing for LIQ861, for which we are targeting our submission in late 2019. By way of background, LIQ861 is an inhaled dry powder formulation of treprostinil, utilizing our proprietary PRINT technology that is administered using a convenient disposable dry powder inhaler. We believe that LIQ861 has the potential to improve the therapeutic profile of existing formulations of treprostinil by enhancing deep-lung delivery and achieving higher dose levels than current inhaled therapies. The primary objective of the INSPIRE study is to evaluate the long-term safety and tolerability of LIQ861. The INSPIRE study is designed to evaluate patients who have either been under stable treatment with nebulizer-delivered treprostinil for at least three months and are transitioned to LIQ861 under the protocol, or who have been under stable treatment with no more than two prostacyclin oral PAH therapies for at least three months and have their treatment regimen supplemented with LIQ861 under the protocol. With the safety portion now fully enrolled, we are currently focusing our efforts on completing patient enrollment in our one-directional crossover substudy to compare bioavailability and pharmacokinetics, or PK, of treprostinil as the patients' transition from Tyvaso to LIQ861. Of the 109 total enrolled patient population as of October 24, 104 patients have received at least two weeks of LIQ861. We have completed enrollment of the safety portion ahead of original expectations, and as such, have updated guidance around anticipated timing for first data readout. We now expect to report two week safety data in the first quarter of 2019, followed by PK results from the substudy in the second quarter of 2019. In addition to the INSPIRE study, we are also conducting a clinical trial that explores the hemodynamic effects of LIQ861 in PAH patients. Although the FDA has not requested that we undertake this clinical trial and it is not required for the NDA submission, we believe the data may assist in further assessing the effects of LIQ861 on acute and chronic hemodynamic measurements and right heart function. Data from this clinical trial would also add to our understanding of safety, tolerability and PK of LIQ861. We expect to enroll our first patient in this clinical trial in the first quarter of 2019. As you have heard, great progress has been made this last quarter in advancing our lead program, LIQ861. We believe LIQ861 has the potential to overcome the limitations of current inhaled therapies and maximize the therapeutic benefits of treprostinil in treating PAH. PAH is a rare, chronic and progressive disease currently with no cure. We believe patients could benefit from a treatment option like LIQ861, possibly improving overall quality of life. As such, we remain focused on wrapping up the INSPIRE study, in particular the PK substudy, as well as supported CMC activities to prepare from our NDA submission of LIQ861. Shifting gears, I would like to now address our second and earlier-stage product candidate, LIQ865. LIQ865 is an injectable, sustained-release formulation of bupivacaine, a non-opioid anesthetic to treat local, postoperative pain for three to five days through a single administration. We have completed a Phase Ia clinical trial in Denmark and a Phase Ib clinical trial in the U.S. Of note, we recently had an abstract excepted at the American Society of Regional Anesthesia and Pain Medicine and anticipate presenting our Phase Ia safety, PK and pharmacodynamic results in 28 healthy volunteers. That meeting is being held November 15 through 17 in San Antonio, Texas, and we're excited to be a part of it. Our next steps for the LIQ865 program are Phase II-enabling toxicology studies. Two studies, bone and wound healing in small and large animals, are being initiated to evaluate the safety of LIQ865. Preparatory activities are underway, with the goal of having a Phase II ready asset in late 2019. We are extremely excited about the potential benefits both of our product candidates could bring to patients, and our entire team of Liquidia is committed to the process of completing the important development requirements. With that, I will now turn the call over to Kevin, our President and CFO, to cover the third quarter financial highlights.

Thank you, Neal, and good morning, everyone. Our third quarter financial results can be found in the press release issued earlier today, which is available on our website. I would like to take this opportunity to walk you through the financial highlights contained in that release. As Neal mentioned earlier, in the third quarter of 2018, we closed on our initial public offering of approximately 4.8 million shares of common stock at a public offering price of $11 per share, including the partial exercise of the underwriters' over-allotment option. Liquidia received $49.4 million total in net proceeds, which included underwriting discounts and commissions. We expect in that proceeds to be used to complete our ongoing Phase III clinical trial of LIQ861, INSPIRE; advanced LIQ865 through our planned Phase II-enabling toxicology studies; fund operations supporting the development of LIQ861 and LIQ865; to continue to broaden out our proprietary PRINT platform and repay outstanding indebtedness in a normal course. Which brings me to my next update. Today, we announced that we closed on a new credit facility and repaid certain existing debt. On October 26, 2018, Liquidia and Pacific Western Bank, or PWB, entered into an Amended and Restated Loan and Security Agreement. This transaction resulted in the extinguishment of Liquidia's $8 million in outstanding indebtedness under the Loan Security Agreement with PWB, and the repayment in full of a promissory note issued to the University of North Carolina at Chapel Hill in amount of $1.8 million. The Amended and Restated Loan and Security Agreement provides for an initial tranche of $11 million, which was received at closing; and a second tranche of up to $5 million available to be drawn at our election through June 30, 2019, subject to the achievement of certain clinical milestones. This refinancing allowed us to defer principal payments to 2020, should provide up to $6 million of additional funds for our 2019 development plans and extends maturity of our credit facility with PWB through October 2022. For the third quarter of 2018, we reported revenues of $0.2 million compared to $1.8 million for the third quarter of 2017. Currently, our revenue is primarily derived for collaborating and licensing of our proprietary PRINT technology to pharmaceutical companies. The decrease primarily relates to lower research and development services performed as we prioritized development of our own pharmaceutical products. Research and development expenses for the third quarter of 2018 were $7.2 million compared to $6.5 million for the third quarter of 2017. The increase in R&D expenses was primarily due to our ongoing Phase III clinical trial of LIQ861, which commenced in late December 2017. General and administrative expenses for the third quarter of 2018 were $2.3 million compared to $3 million for the third quarter of 2017. The decrease in G&A expenses was primarily due to costs of an abandoned equity offering being expensed during the third quarter of 2017 when the Company had explored a public offering on an international exchange. We reported a net loss of $9.7 million for the third quarter of 2018 compared to $19.2 million for the third quarter of 2017. The decrease was due to several factors including the decrease in G&A expenses, a decrease in interest expense of $3.5 million due to lower outstanding debt balances due to the conversion of previously outstanding convertible notes, and a decrease in derivative and warrant fair value expense adjustments of $7.4 million, partially offset by the decline in revenues and the increase in R&D expenses. We are pleased to have completed the IPO on the third quarter of 2018, which simplified our capital structure and balance sheet with all convertible instruments converted to common stock, and resulted in a cash balance of $47.5 million as of the end of September 2018, to be used to fund our development initiatives. And with that, I will turn the call back to Neal.

We appreciate everyone taking the time to join this morning's call. We've made significant progress this past quarter, especially in terms of our lead product candidate, LIQ861. A special thank you to all of our employees for all of their hard work, our team is committed to impacting the lives of patients, and we look forward to continuing to execute toward upcoming milestones. In closing, let me summarize key future milestones anticipated in both 2018 and 2019: initiation of our Phase II-enabling toxicology studies for LIQ865 in the fourth quarter of 2018, reporting of our Phase III two week safety data for LIQ861 for the INSPIRE study in the first quarter of 2019, enrollment of the first patient in the first quarter of 2019 in our hemodynamic clinical trial for LIQ861, reporting of our Phase III LIQ861 PK results from the INSPIRE substudy in the second quarter of 2019, and lastly, submission of our NDA to the FDA for LIQ861 in late 2019. We look forward to keeping investors updated. To note, we intend to present at the upcoming Jefferies London Healthcare Conference on November 15, and look forward to hopefully seeing many of you there. As always, thank you for your interest and continued support. And now, I'll turn it back to the operator to queue up any questions that you may have.

[Operator Instructions] Our first question comes from the line of Ken Cacciatore of Cowen and Company. Your line is now open.

Just have a few questions. The first, on your second 861 Phase III hemodynamic study. Understanding you're rolling in Q1, but can you give us a sense of when it may complete? I know the FDA is not asking for this, but just wondering if this is something that they would want to see in the NDA package. And then second question is can you just talk about how the market could evolve here from -- you currently are targeting the Tyvaso potential conversions, but can you talk about what your product might do in terms of expanding, moving earlier on the treatment paradigm? Maybe just frame the market for us a little bit.

Sure, Ken. This is Neal. Let me handle your first question out of the gate. With regard to the hemodynamic study, as you indicated, we'll enroll our first patient shortly here, and those results will likely be completed sometime over the course of 2019. As you're probably aware, there are acute and chronic data from that study. Our intention has been to have the acute data included in our NDA package. We knew the chronic data would be of a longer-term phenomenon, so that would be later in the process and not required at all again by FDA. But our intention, again, would be to include the acute portion of that in our NDA filing. To your second question, we're obviously very enthusiastic about the transformation of what we think this can do for patients that have PAH given, to date, some of the limitations of current nebulized therapies. As you know, the INSPIRE trial went after two different subsets of patients, not only direct switches from Tyvaso over to LIQ861; but also what we call the add-on patients, these would be nebulized naive patients to date, so they would've currently been on just oral therapy. So I'll answer your question in two ways. One, on the upfront portion of that with patients that have previously not used nebulized therapies before. We think that INSPIRE is set up to show that, out of convenience, that patients will now have an earlier alternative to delivering treprostinil locally to the lung, which is where we think that is best for patients and it will not be kind of relegated in a more difficult-to-use nebulized type of approach. So that expands on the upfront portion. In addition, on the downstream portion, as you're aware, the maximum tolerated dose, for example, on Tyvaso is currently in the 84 microgram kind of range. And as you're aware, in our Phase I study, we showed a very well-tolerated medication up to 150 micrograms. So we think, in essence, it allows you also on the later portion to go higher doses with LIQ861 in an inhaled therapy that has not previously been able to be done. And ultimately, it expands both the front end and the back end of what we know today as current inhaled therapies.

Our next question comes from the line of Liana Moussatos of Wedbush Securities. Your line is now open.

Can you talk in more detail about the steps to submitting the NDA by year-end from the two week safety results and if anything is rate limiting?

Liana, it's Neal again. Yes, thanks for your question. As everyone I think is aware here, there are multiple tasks involved in an NDA. So part of that is clinical, which as you can hear we've made very notable progress with our INSPIRE trial. We will have again the two week safety data we'll report out in the first quarter. We will finish completion of the PK enrollment and report that out in the second quarter. As that is moving along in parallel, as you would be aware too, we have our CMC work that is underway. And so all of this kind of culminates -- kind of pulling together stability of the process work that we do, with the ability of file at the latter part of 2019.

Our next question comes from the line of Serge Belanger of Needham & Company. Your line is now open.

Just a couple questions on INSPIRE for me. First, on the patient population. Out of the 109 patients that you've recruited, are they split about evenly between Tyvaso switches and add-ons? And then how many patients are you looking to recruit in the substudy PK part of the INSPIRE?

Sure. Serge, Neal again. Thanks for your question. Yes, we're not getting into the details of exact numbers of patients in the trial, and you'll see that in fairly short order when we report the results. What I can say is we're pleased to see a really nice split between the two. It's a representative sample that we had hoped to see and it kind of met our expectations, and we'll share the full results of that when we share all the data. With regard to -- I'm sorry, your second question had to do, I believe, with the PK substudy and number of patients. That number will be somewhat dependent on data that comes in, but that number is targeted to be in the 18 range. And again, we're already enrolling. We're right where we thought we'd be on expectations there and we just need to kind of complete the portion of that study. But we're right on target.

And then in the safety data that will be seen in the first quarter of '19, can you just frame for us what will be considered a success? Is it kind of repeating the safety profile that we saw in the prior studies?

Yes. In fact, I've got Rob Roscigno here, who's in charge of the trail. Why don't I let Rob handle that? Thanks for your question.

Good morning, Serge, it's Robert. So in regards to what we're reporting out in terms of safety and what we would consider a success, again FDA said they're looking to review and evaluate the safety and tolerability of our product in the PAH population over a two week period. And therefore, we will be reporting all adverse events and serious adverse events within that time frame.

[Operator Instructions] Our next question comes from the line of Roger Song of Jefferies. Your line is now open.

So my question is just kind of can you provide more clarity on the content of the NDA. I know the two week safety study data and the PK is included in the clinical package. So do you expect to include the efficacy at the second endpoint, as well as some kind of longer-term safety data in the clinical package as well?

Yes, I'll let Rob answer this as well. Go ahead, Rob.

So Roger, yes, we will most likely include long-term safety than two weeks, possibly up to two months for the patient population. Regards to those other endpoints, those are all exploratory endpoints, because this study was not an efficacy study. So we will obviously review the data, and if compelling, we'd make best efforts to push forward as far as -- as part of the NDA. It will be reported, obviously. But again, we don't expect to have those results until later in 2019.

So just curious on the submission. Will that be a rolling submission or it's a kind of standard submission? And do you expect that it will get priority review or standard review?

Yes. So right now, currently, we are looking at all of those possibilities. But our plan again would be I think as we all know, the clock on that from the FDA would not be finished until all of it is in. So we are reporting that we'll have the NDA filing done by the end of 2019.

And I'm showing no further question at this time. I would now like to turn the call over to Mr. Neal Fowler for closing remarks. End of Q&A:

Okay, great. Well, listen, again, I want to thank everyone for your interest and your participation this morning. Obviously, we look forward to connecting with many of you in person, maybe some hopefully at the Jefferies Healthcare Conference in London upcoming. And by all means, if you have any further questions, please contact Jennifer, and we're happy to connect at any point of your convenience. Thank you again.

Ladies and gentlemen, thank you for participating in today's conference. This concludes today's call and you may all disconnect. Everyone, have a great day.